Saturday, 7 January 2017

Brexit: into the abyss

For better or for worse, a large portion of the economy, specifically in engineering - oil, energy and defence is based on the consultancy model. Rather than taking a fee for the provision of design services shell companies will take a percentage of the hourly rate of the people they supply. We have businesses up and down the country scouring the public contracts databases for the whole of the EU and recruiting the best people from wherever they can get them. That means a company based in Hereford may recruit someone in Poland to send to a nuclear plant in Barcelona.

Because of this model it is difficult to track and monitor the income streams as the money may come from Poland when the actual pay comes from Spain. That is what makes bilateral deals precarious when talking about trade in services. You need multilateral agreements.

It essentially people brokering where most of our engineering companies don't do any engineering, have no in house expertise and no institutional knowledge. They are shell companies providing engineering services. And while politicians repeated claim we are an exporter of services as a knowledge economy, knowledge is not something we actually retain. Consequently, without a workable means of supplying services or bidding for EU contracts all of that falls apart - especially if we do not have a very liberal arrangement on free movement.

A criticism of this arrangement is that while the UK is at liberty to bid for contracts within the EU and even set up companies to supply services, very often we find the disparities of systems means we cannot get insurance or UK qualifications are not recognised. While we may have cracked free movement of goods, free movement of services is still woefully underdeveloped and still subject to a great deal of bureaucratic protectionism. That though is not a reason to walk away from any such cooperation. That is a reason to keep trying.

Services in many respects are the key to our future success. It requires no real capital investment, the overheads are low and much of the resourcing can be done on a commission basis. If you have a winning formula in services provision you effectively have a licence to print money without actually having to provide anything tangible in your own name.

Some would call this system the very essence of neoliberalism - but I am not really here to debate the ethics of it - we must take the world as we find it when designing any new relationship with the EU.

It would appear that the government is hell bent on ending freedom of movement no matter the cost - but when we have the likes of Airbus who assemble aircraft from sections made all over Europe, a degree of free movement for engineering professionals is absolutely essential otherwise there is no incentive to invest further in the UK.

Increasingly people and services matter more than goods and Toryboys can prattle all they like about tariffs but that says nothing of the huge services sector. Today we had Liam Fox telling us that fifty trade deals were in the pipeline with other countries but this is more likely to be centred on goods rather than services.

Leaving aside that the long and protracted negotiations cannot even begin until we have left the EU, a lot of the countries listed are already signatories to UNECE and Codex conventions and standards - and because we will maintain those same standards come what may we have little to trade with and little of value to gain. Also, what use is an agreement on tariffs with a country whose exports are minimal or where there is insufficient investment in infrastructure for growth?

Trade liberalisation can only really be done through trade facilitation measures and the big wins come from introducing multilateral regulatory cooperation measures. Bilateralism is dead. It should also be noted that tariffs are historically low and less of an issue than currency fluctuations.

This though is alien to Toryboys who see regulation as a piffling distraction to be dispensed with rather than central to the entire edifice of modern trade. Their fixation is on tariffs and trade in goods - which is why they bleat the mantras about the UKs trade deficit. That deficit closes considerably when you add in services and still it remains the case that our nearest neighbours are our most important partners. That is unlikely to change except in IT services where we will necessarily need to liberalise trade in services with India and that will most likely come with visa relaxation demands - the one tangible thing we can trade with.

If we cut ourselves out of the loop with freedom of movement then we can expect to take a major hit to services and our "knowledge economy" simply because if you can't export people then you can't export knowledge without interminable and expensive bureaucracy.

In that regard a state mandated quota system then requires all business to constantly liaise with government to apprise them of their requirements on sending people out and bringing people in. Such a system would be unworkable.

In the determination to control our borders we risk damaging a lucrative sector that employs many here in the UK while risking an inferior trading realtionship with the partner that matters most. These scrappy deals, the nature of which we are not yet permitted to know - for the Toryboys themselves do not know, are in no way a substitute for single market membership.

The Toryboy assumption is also that these deals will necessarily successfully be concluded. There is no evidence of that and no indication that they will take effect sooner than ten years after Brexit. What do they propose that we do in the meantime? It would be a fine thing to increase our global reach and liberalise trade with non EU states but that should not come at the expense of the best available trade we can get with the EU.

The dismal mantra that they need us more than we need them is typically British in its arrogance and stupidity. You cannot argue that we are wealthy because we are an outward looking and liberal economy as you set about creating a number of non tariff barriers with our nearest trade partners. We are presently at the mercy of a cult within the Tory party which is determined to hang on to its 19th century trade ideals completely oblivious to the mechanics of modern trade with only a shallow understanding of the function of regulation.

These are people surrounded by yes men and gatekeepers who will rigidly enforce this institutional ignorance rejecting any honest expertise in the process. There are academics who came out for remain during the referendum whose opinions on who should govern us I would reject out of hand every single time - but I still want to hear their views on the mechanics of EU and international law, but in the eyes of the zealots, anybody not subscribing to the scriptures of "free trade" is boxed up and labelled as an enemy of the people. A deeply worrying development.

How much influence over the Brexit process these morons have is unclear. Everything depends on whether Mrs May is taking sound independent advice or whether the snake oil frauds like Shanker Singham are given houseroom. Until Mrs May elaborates we can only guess. If Mrs May is not in a matter of weeks making strong signals that we will seek temporary membership of the single market then we will know that the zealots have won and we are in for a very rough ride.

Not for a minute do I dispute the notion that the UK can negotiate a deal that sees us leave the single market but such a course would be fraught with complexity and a good deal of unnecessary risks to achieve a worse settlement than the one we could pick up off the shelf.

The Toryboy/Kiptard axis has it that we should leave in order to make our own laws and control our borders. This is a deeply flawed proposition. Such is the nature of regulation now that there is no escaping it and it is essential to the proper functioning of trade in order to remove, not add, bureaucracy.

The Toryboys have spent the last three decades railing against EU red tape but now propose we create even more of it in the name of free trade. Brexit as it is exempts us from EU legal supremacy and returns all of the powers that matter - but if we insist on going it alone we will find the stated benefits are as empty as their promises of sending £350m a week to the NHS. Our engineering sector is a major growth sector and if we insist on controlling our borders in the way that Ukip have proposed then we stand to lose out in a very big way - culturally and financially.

What we are dealing with here is a deeply corrupt clan of self-serving Tory bigots who are prepared to gamble the UKs future on their archaic delusions of how trade works. If these people are allowed to set the agenda for Brexit then we stand to be humiliated. The world over trade growth is stagnating because we are seeing trade normalisation. Without major investments in trade infrastructure in the developing world there is no easy way to break the deadlock. To unlock the dormant growth potential it necessarily requires that we expand our aid initiatives and seek global solutions to regulatory challenges. Such forward thinking is the very last thing we can expect from dinosaurs obsessed with bilateral deals on tariffs.